While automobile dealerships offer to finance, you’ll generally get lower rates from third-party providers. To that end, our review team examined 21 car lenders who over 3,415 clients ranked. Check out our post on selecting the best auto loan dealership by analyzing creditworthiness, application procedures and unique financing alternatives.
Our Preferred Auto Lenders
The selection of our top auto lenders is the result of a comparison of available lending amounts, creditworthiness criteria and the overall experience of the loan. To be selected as a preferred lender, the lending institution had to provide the services listed and precise information regarding its process on its homepage or via its customer care service. All of this data was factually accurate at the time of publication.
1. Bank of America
As a national lender, it offers both on-site and web-based services, which makes it an appealing option for any kind of buyers. Its auto financing is perfect for purchasing new or used cars and provides customers with financing options tailored to small business automobiles.
2. Pentagon Federal Credit Union Car Loans
Also called PenFed, it offers used and new car financing and a car buying feature enabled by TrueCar. The company’s online auto loan rating calculator provides you with an estimated monthly payment depending on the purchase price of your auto, the amount of the down payment, the loan duration and the lending rate.
“PenFed has great extras for those buying cars, such as an extended guarantee plan and gap coverage for eligible car acquisitions,” said John Messina, recent PenFed customer.
3. Carvana
Carvana brings used vehicle buying and lending together on its online site, allowing you to complete your purchase and fund your automobile on a single platform. Carvana uses a powerful tool to calculate the amount of loan you can handle and set your monthly payments accordingly to the amount you want.
Process for Obtaining an Auto Loan
Getting an auto loan involves a similar procedure to other loan processes. Although comparing auto loan providers may seem daunting, looking for a lender with competing rates and criteria will spare you money throughout the loan process.
1. Knowing the amount of financing you can handle
Before looking for funding, you should know the vehicle loan sum you can manage to qualify for. This amount will vary depending on your finances, your phase of life and the down payment you are able to make. Spend some time evaluating your actual financial obligations.
If you have student debt or other fees to make, choose a smaller loan with a briefer timeframe and a more favorable interest rate,” said Mahdi Namazi, credit analyst at JPMorgan Chase.
2. Review your credit rating
A key factor in setting the rate for an auto loan is your credit rating. There are several online credit monitoring services to check your score, and several credit card issuers offer free credit tracking services. In addition, everyone is entitled to a free annual copy of their respective credit history report, which provides an insightful overview of its contents but not a credit rating.
Usually, consumers with increased credit scores get better rates and terms from car dealers. Those with poor credit scores may need help getting credit with a lender that provides reasonable payment plans.
“While it is possible to buy an auto with poor credit, I recommend that you take the time to upgrade your credit rating before buying a vehicle,” said Devika Naik, certified public accountant at Brothers CPA LLC.
3. Research and compare rates from several car lenders
Exploring and analogizing rates may become tedious with the wide range of auto lenders. It is wise to begin by filing an auto loan application with each type of lender (banks, financial cooperatives, dealers and online lenders) and then compare their interest rates and lending terms. If you intend to go with a particular lender, it’s best to apply to more than one auto loan company to negotiate your loan rate with your favorite lender.
Kinds of auto loans
Various kinds of vehicle loans are available. Take a look at the types of loans available below to discover which is the best for your needs.
- Secured: The most common car loans are secured, meaning the vehicle purchased is pledged as collateral. The interest rates on these loans are lower, but the creditor can repossess the car or collateral if you default on your payments.
- Unsecured: Non-secured loans do not require collateral. As a result of their risk, these loans are generally granted at interest rates exceeding those of secured car loans and need excellent creditworthiness.
- Precomputed interest: These loans feature a predetermined interest, and the principal amount is set before both parties (borrower and lender) approve and sign the monetary documents.
- Simple interest: In most cases, auto loans are on a simple interest basis. These loans refer to the amount owed when paying the loan to determine the amount of interest charged by your lender.
- Lease buyout: This loan can be used by borrowers who cannot pay off the remaining amount of their vehicle lease. A saleable lender will pay the lease balance, provided the borrower makes regularly scheduled payments to the lender.
- Car refinancing: A refinances an excellent option for those seeking a cheaper interest rate on their existing auto loan. If you have just improved your creditworthiness, getting a refinance can be an ideal way to reduce your payments.
Requirements for Auto Loans
Before you choose an auto lender, please find out about their loan requirements. These differ according to the financing company of your choice but may include the following:
- Minimum loan sum
- Minimum income
- Minimum down payment amount
- Minimum credit rating
If you are now dealing with an auto lender, find out about the above requirements so that you don’t have to pay additional charges or fees.
Rates for Auto Loans
Most automobile loan rates differ based on factors such as your income and the type of loan you want, but credit score is probably the most significant factor in setting the rate for your auto loan.
Learn About Car Loan Requirements
Before jumping into the lending process, ensure you’re familiar with the wording used in the auto loan industry.
- APR (annual percentage rate): Depending on the applicant’s credit record, financial standing, and various other variables, loan providers award a range of annual percentage rates. A lower APR means you will pay less throughout the loan term.
- Payments per month: The amount you will be charged each month is called the monthly payment. If you have a relatively high monthly payment, you will find it easier to repay your auto loan faster.
- Short-term car loans: According to companies that give short-term car loans, customers have a maximum number of weeks to repay the loan. In many cases, these companies do not set fixed dates for payment schedules but only a deadline by which the whole amount has to be paid back.
- Overall cost: This cost is determined by the amount of the loan, the interest rate, and the term. One frequent mistake with auto loans is that people look at the monthly price of their vehicle payment and forget about the total loan cost. Be aware of the total amount you can afford before focusing on the month-to-month rates.
Finding an Auto Loan
Multiple loan providers give auto loans, so you should find out which suits your situation. Take care to apply for a loan from several different lenders so you can comprehend what each one offers.
Banks
The vast majority of banks and major financial entities act as lenders and employ experts to handle car loans. Rather than using other lenders, these companies usually provide the cash for the loan themselves.
Dealer partners
A few companies team up directly with dealers to get in touch with consumers, check out the lenders’ credit history and offer them a loan on a used or new car and a custom loan repayment arrangement. It differs from the lenders who ultimately provide the loan and get it approved themselves. Instead, they are working with the dealers to make it easier for consumers to get approval via the dealership.
Bad credit professionals
Several vehicle loan companies focus on customers with bad credit or who recently filed for bankruptcy. They are able to offer better terms and conditions than those that would be available if the borrower were to deal directly with a car dealer.
Refinancers
Numerous car loan companies partner with various lenders to provide refinancing for their clients’ existing loans. Typically, they can offer cheaper fees and improved conditions through their refinancers. Based on your location, it’s worth finding a car loan with rates both competitively priced locally and nationally.
Credit unions
Lending cooperatives make loans only to their customers. Since they are non-profit entities, their loan rates are usually quite competitive. A positive membership history and an excellent connection to the credit union are essential.
Dealership financing
Manufacturing companies may own lending businesses or maintain relationships with banks that provide better pricing. Be sure to shop around before selecting one.
